Elena Ravencourt
Aug 21, 2023
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Articles
Exploring different approaches to pricing, including market research, competition analysis, and setting margins to ensure profitability
In order to determine the appropriate price for a good or service, a pricing strategy is a model or process. It assists you in setting prices while taking customer and market demand into account in order to maximize earnings and shareholder value.
Price new products for resale in a variety of ways. The most straightforward strategy is typically a cost-plus strategy, which is multiplying your product cost by a markup percentage, like 100%. The retail selling price of a cordless drill would be $50 if you purchased it for $25 at wholesale and imposed a 100% markup. But ultimately, it will be believed that competition has the biggest impact. You would be challenged to sell for more if the majority of eBay resellers are asking $35 for a cordless drill unless your model had significantly more user advantages and features.
Of course, you might be able to offer a cordless drill for $75 if you were the only business selling them, whether online or off.
Pricing must also take into account sales value. You might receive a staggering 300 percent markup if you buy a lighter for $1 and sell it for $3, but you also need to sell a lot of lighters to make enough money to cover your fixed expenses and revenue. On the other hand, you might only make 5% on the resale of a piece of property, but this adds up to $15,000 on a $300,000 transaction. Once more, selecting the items to resell and their prices requires using common sense.
The ideal way to price products for a small buy-and-sell business is to do market research to see how much similar or identical goods are selling for, how they are being sold, and who is purchasing them.
Research methods comprise:
Pricing used goods for resale has similarities to pricing new things, particularly in terms of pricing research. To help you establish the market value of the used products you are selling, use many of the same pricing research tactics, including web searches, classified advertisements, and mystery-shopping comparisons for small items at thrift shops. For more pricey items like cars, boats, and recreational vehicles, price guides are also available.
The product is often described in price guides, along with its model and characteristics, and a value is assigned to it depending on these factors and the item's condition. Used automobile dealers have been establishing a purchasing and selling price for trade-ins using price guides for decades.
On more expensive objects, you can also commission expert appraisals to help justify and support the asking price. Particularly relevant examples include real estate, automobiles, expensive jewelry, and yachts. The expense of expert assessments and surveys should be considered when buying a property and should be passed along to the buyer when selling.
Many resellers develop a sliding-scale pricing system for their products. Items that are in excellent condition are priced at 70% of their original cost, while those that are still marketable but have seen better days are valued at 30% of their original cost. Additionally, certain goods hold their worth better than others. In contrast to computer displays, which retain their worth better because to the slower and less frequent pace of technical advancement in monitors, computer towers are known for having poor resale value.
Pricing used products for resale ultimately comes down to what the market will bear, but you may significantly improve your chances of getting top dollar by selling goods that are functional, in good shape, and in demand, as well as by selling through the appropriate channels and to the appropriate demographic.
A reliable used car to bring the kids to school, a cooker to cook on or clothes to cover people's backs are necessities, but pricing antiques and collectibles for resale is a very different ballgame. The target market for antiques and collectibles might be quite small, especially for rare collectibles and highly prized antiques. These items are something people want, not need. Let's face it, not many buyers have $25,000 extra laying around to spend on a genuine Tiffany lamp. Pricing therefore largely reflects what the market will bear.
For every conceivable kind of antique and collectible, there are price, value, and condition guides available. Value guides are without a doubt an excellent place to start when pricing and are generally very helpful, but only up to a point. Values of antiques and collectibles fluctuate regularly and are affected by numerous variables.
Selling antiques and collectibles involves selecting the best sales locations and target market just as much—if not more—than it does the actual object. As a result, successful dealers in antiques and collectibles always keep a careful eye on what's happening in the market. The justification and support of asking prices are further aided by expert appraisals and authentications. The value of antique, collectible, and memorabilia items can often be significantly increased by having them appraised and authenticated. Identification is particularly useful.
Analysis of competitive pricing involves conducting surveys or research based on past data to gauge how consumers would respond to new prices. Price analysis often looks at how consumers react to a price without taking into account the costs and potential revenues for the company. The team of pricing experts creates an ideal offering using the results of the initial price research along with the other pricing criteria.
More than 80% of consumers evaluate the offerings of several retailers in pursuit of a better deal, according to recent research. These customers are attracted to retailers first and foremost that can gather and analyze market data, map their position against rivals, and provide the best deals.
The following are some advantages of competitive pricing analysis:
To analyze competition, it is essential to have complete and accurate data.
Comparisons in depth
Color, technical details, and other product qualities are essential for high-quality data and are not included on product cards, so retailers must consider all of this information.
Percent of mistakes
The majority of data matching is automated, which makes it rather prone to error. Better outcomes are guaranteed and automatic solutions are improved by manual comparison.
The proportion of planned to actual data. Since the algorithm can be missing data that isn't present on the competitor's website, data may be insufficient. As a result, the amount of data estimated prior to the collection may be more than the amount of deliverable, useful data.
Updates to the data. Before repricing, retailers must use the data gathered no later than two hours in advance.
The business must next decide what crucial aspects of competitive data they should want to gather and examine for their pricing procedure.
Here are a few examples to show the types of parameters that are commonly tracked:
Classify your competitors
Once a shop has comprehensive information about its rivals, the store must categorize those rivals according to a variety of criteria, including but not limited to target market and product quality. Market competition can be categorized into three primary groups:
Competitors can be categorized to save time during market analysis and to help merchants concentrate on the areas of competition that matter most.
The competitors could alternatively be defined and categorized using a data-driven strategy. You could potentially manually classify rivals if you are a mono-brand merchant or just sell a small number of SKUs. But the savvy competitor's research is the only option for big sellers who provide thousands of products in various price ranges.
Beyond that, the competitive environment for each product is unstable as new companies enter the market and other stores alter their business plans. It indicates that, depending on the type of product or market sector, competitive analysis and classification are ongoing procedures that need to be carried out more or less frequently.
To meet this demand, Competera provides a module dubbed "True Competitors" that allows retailers to analyze historical data from both competitors and retailers to determine the true influence each participant has on sales of a specific SKU.
In order to gather and analyze data, modern retail organizations are turning more and more to algorithms. Machines have many advantages over manual methods:
The ability of retail teams to shift from regular duties to strategic ones addressing pricing strategy and price management is arguably the most significant benefit of automating the pricing process.
When implementing competitive price analysis, businesses may encounter a number of difficulties. Obtaining and analyzing data from many sources is necessary to ensure the accuracy of the data being analyzed, which is a significant problem. This can be a costly and time-consuming operation, and the data's inaccuracies or consistency issues might have an impact on the analysis's correctness. Another issue is the scarcity of data, which makes it difficult for smaller businesses to compete with larger ones since they may find it difficult to get enough information on the pricing tactics of their larger competitors.
Furthermore, it may be difficult for organizations to pinpoint the appropriate rivals for analysis, particularly in markets with a lot of players. It's important to take into account the environment in which prices were set, including elements like product quality, customer service, and marketing techniques. Simply comparing prices between competitors might be misleading.
Lastly, because market conditions can change fast, it can be challenging for companies to keep up with the price strategies of their rivals. Businesses must be able to quickly adjust to shifting market conditions in order to stay competitive.
Price competition solutions can offer significant insights for businesses, but in order to ensure that the analysis is accurate and relevant, it's crucial to be aware of these difficulties and take action to reduce them. This can involve enhancing the procedures for gathering and analyzing data, making investments in data acquisition tools, and taking the larger market into account when analyzing competition pricing.